What would the PCC do?

In the aftermath of the joint announcement by PLDT and Globe of their purchase of SMC’s telecom business, many have speculated on whether the transaction was anti-competitive.

Inevitably, the attention of the Philippine Competition Commission was called. The PCC released a statement saying, “It is within the powers of the Commission to evaluate all business agreements and transactions that may have potential impacts on market competition. In view of the importance of this transaction to the public interest, the PCC will assert all of its powers as provided for in the law. Because of the strong public clamor for faster, cheaper, and better quality internet and mobile services, and that these could be stymied by a lack of competition in the sector, the Commission has a keen interest in this proposed transaction. The Commission shall assess and take action as appropriate.”

Of course, any action that the PCC can and will take must be within the confines of the Philippine Competition Act and the rules that the PCC itself has written. Let’s unpack these, shall we?

The PCA lists a number of powers of the PCC but I will only highlight what I think may be relevant to PLDT/Globe-SMC transaction:

• Conduct inquiry, investigate, hear, and decide cases on violations of the PCA and its rules. The PCC can act on its own, on the basis of a complaint filed, or upon referral by a government regulator.
• Review proposed mergers and acquisitions. The PCC sets the rules on when and how it is informed of a merger/acquisition. The PCC can also prohibit the transaction if it will substantially prevent, restrict, or lessen competition.
• If it finds that an entity has entered into an anti-competitive agreement or abused its dominant position, the PCC can issue an injunction, require the entity to divest its interest, or return excess profits (the law uses the term “disgorgement” and it does not conjure a pretty picture).

Based on the powers I’ve listed above, I think the second bullet, “review of proposed mergers and acquisitions” is the most relevant. To effect the PCC’s review of the transaction, the PCA requires that the parties should notify the PCC of the merger/acquisition if the transaction is more than P1.0 Billion. After filing the notice, the parties cannot consummate the transaction within 30 days (let’s call this limbo). During this time, the PCC reviews the transaction and it can ask for additional information. Such a request can extend the period of limbo for 60 days, but the total period of limbo should not be longer than 90 days. These are just the rough outlines provided in the PCA, and the PCC is required to issue additional rules on the details and procedure of the notice, and any exemptions and exceptions to the notice requirement. The PCC did just that when it issued Memorandum Circular No. 2016–01.

MC 2016–02 are transitory rules meant to cover transactions of PSE-listed companies during the period when the PCA is already effective but the IRR has not yet been adopted (let’s call this the ninja period). As you may know, the PCC has just finished public consultations on the draft IRRs. The MC enumerates the transaction details that the notice should contain. More importantly, the MC states that during the ninja period, as long as the parties submit the notice to the PCC, they can already implement the agreement. Yes, this means that during the ninja period, the limbo period does not apply and the transaction is already “deemed approved” by the PCC. Also very important to note: The MC states that a transaction that has been deemed approved in this manner may no longer be challenged under the PCA.

What does this mean then? It means that the PLDT/Globe-SMC transaction may not be invalidated even if we assume that the following violations of the PCA were true:

• That the agreement has the object or effect of substantially preventing, restricting or lessening competition;
• Or that PLDT/Globe abused their dominant position by engaging in conduct that would substantially prevent, restrict, or lessen competition (specifically, imposing barriers to entry or committing acts that prevent competitors from growing within the market in an anti-competitive manner).

So how does this MC square with the statement of the PCC that they will look into the transaction? Frankly, I don’t know.

In case the PCC does take action, certainly PLDT and Globe (assuming that they have actually filed the notice with the PCC) will use the provisions of the MC as a defense. If the PCC decides to bar the transaction, I expect that PLDT and Globe will go to the courts to challenge the PCC’s action. I am not sure that they will win, but they have a fighting chance under the circumstances.

On the other hand, a case can also be brought to the courts challenging the validity of the MC issued by PCC since this actually allows transactions within the ninja period to go through without a review. Will such a challenge prosper? Again, I am not sure. However, the MC provision on “deemed approved” transactions has a basis since the PCA only makes notice to the PCC mandatory. PLDT/Globe can argue that the PCA did not set the PCC review to be mandatory and it is a defensible argument under the PCA.

Another option is to challenge the transaction under other laws. Take note that the MC only bars a challenge based on violations of the PCA. It does not cover violations of other laws.

Finally: At the end of the day, this transaction is only about the sale of shares of SMC companies engaged in the telecoms business. The ultimate prize of the transaction — the access to the 700MHz spectrum— is still to be implemented.

The question then becomes, WHAT WOULD THE NTC DO?

Edited to add: I forgot that the NTC is allergic to actually doing anything. NTC’s go-to plan of action? APPROVE WITHOUT THINKING! (Here’s the link to the NTC approval of the 700MHz spectrum transfer.